Are Prices ‘Sticky’ Online? Market Structure Effects and Asymmetric Responses to Cost Shocks in Online Mortgage Markets

Maria Arbatskaya and Michael Baye

No 2004-01, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: We analyze daily mortgage rates posted by online lenders at the price comparison site, Microsurf. While cost shocks occurred almost daily in our sample, quoted mortgage rates are surprisingly rigid: Only 16 percent of the posted rates represent changes. However, firms that adjusted rates in response to cost shocks did so quite rapidly; about 98 percent of a cost shock was passed through within two days of the cost shock. Duration analysis reveals that the observed rigidity in rates systematically depends on market structure: Online mortgage rates are 30 to 40 percent more durable in concentrated markets than in markets where there are many competitors. We also find that rates posted online tend to exhibit downward stickiness; rate adjustments in response to cost increases are about twice the corresponding adjustments for cost decreases.

Keywords: mortgage rate; price adjustment; price rigidity; price dispersion (search for similar items in EconPapers)
JEL-codes: D43 L13 M3 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2004-01-arbatskaya-baye.pdf (application/pdf)

Related works:
Journal Article: Are prices 'sticky' online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iuk:wpaper:2004-01

Access Statistics for this paper

More papers in Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy Contact information at EDIRC.
Bibliographic data for series maintained by Rick Harbaugh ().